Legal Consequences of Bank Account Freezing Upon Appeal Being Filed in Terms of Section 107 of the CGST/SGST Act [Read Draft Reply]

In the Goods and Services Tax (GST) system, the authority of provisional attachment by Section 83 of the CGST/SGST Act has been one of the most irritating matters for taxpayers versus the department.

Although the section is supposed to protect revenue of the government, much distress is caused by its invocation, especially when bank accounts are frozen even after a proper appeal is lodged before the Appellate Authority in terms of Section 107.

To overcome such persistent confrontation, it becomes imperative for taxpayers as well as practitioners that they comprehend the legal stance in regard to bank account attachment in pending appeals as well as the procedure for seeking removal of such attachment.

1. Grasp of Legal System

In section 107(1) of the CGST Act, whoever is aggrieved by an order of an adjudicating authority is entitled to appeal to the Appellate Authority as provided in the Act for prescribing within three months from the communicating of the order. Sub-section (6) insists that the appellant shall make payment of complete admitted tax and 10% of the amount of disputed tax as a pre-deposit for the appeal being maintainable.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

Additionally, Section 107(7) states that recovery of the balance amount shall be stayed when such pre-deposit is accepted and the appeal is submitted. This statutory stay functions automatically by reason of the filing of the appeal; no separate order of stay needs to come from the Appellate Authority.

Notwithstanding such express legislative desire, there remain cases in which bank accounts continue to remain attached or remain attached by the department after filing of appeal and making of the required pre-deposit. Such measures are in derogation of the statutory system and of the principle of the constitution against arbitrary deprivation of property.

2. Section 83: An Instrument of Protection, Not Repression

Section 83(1) gives power to the Commissioner to attach any property, including bank accounts, provisionally in case he is of the view that such attachment is required for safeguarding the interest of revenue. The power, however, is to be used sparingly and with due application of mind. Courts, time and again, have cautioned that Section 83 is no recovery device but only a temporary measure to prevent evasion or dissipation of assets.

As soon as an appeal under Section 107 is preferred, and the pre-deposit is complied with by the assessee, the balance demand freezes as non-recoverable during pendency of the appeal. It follows that, at that juncture, such continuation or initiation of attachment of bank accounts is legally untenable.

3. Judicial Pronouncements: The Emerging Clarity

An important judgement in this context is the Himachal Pradesh High Court judgement in M/s Skylight Manpower and Hospitality Services vs. State of Himachal Pradesh (CWP No. 7273 of 2022, dated 10 January 2023). The Court specifically decided that after filing of appeal with the required pre-deposit, recovery proceedings of the balance amount of demands would stand stayed and, thus, all attachments of bank accounts or other immovables shall stand cancelled.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The Court noted that such action by the department of keeping attachment in spite of the appeal filing is violative of the very spirit of Section 107(7), that of granting automatic protection against recovery. The decision, thereafter, has been followed in some later cases, fortifying the taxpayer’s case.

The principle is simple: if the law allows for automatic stay on pre-deposit, the department shall not take coercive actions such as attachment or garnishee proceedings while the appeal is pending. Any such move constitutes premature recovery and is liable to be struck down.

4. Taxpayer and Practitioner Steps in Practice

When faced with attachment in the face of an appeal, practitioners must instruct clients to promptly take a written request to the jurisdictional officer for lifting of the attachment, with supporting:

• Duplicate of the Form APL-01 acknowledgment in proof of appeal filing.
• Evidence of payment of 10% of pre-deposit of the disputed tax.

The letter format that follows is a structured format for such a notice, obviously citing applicable provisions and judicial authority. It is dual in purpose, in that it signifies the assent of the taxpayer to statutory requirements, but it also gives notice to the department that further attachment would be ultra vires.

If the officer is negligent, the taxpayer can approach the jurisdictional High Court as per Article 226 of the Constitution and seek directions for the de-freezing of the account on an immediate basis, on the ground of violation of Section 107(7) and natural justice.

5. Balancing Revenue Interests and Taxpayer Rights

The GST system attempts to find a balance between preserving revenue and guaranteeing protection to taxpayers. While attachment of bank accounts is necessary in genuine cases of revenue risk, misuse of it as a weapon of intimidation undermines trust in the tax administration. Parliament, through Section 107(6) and (7), has given a transparent mechanism: pay 10% of the amount in dispute, and enjoy a stay on recovery during appeal. This balance needs to be followed in both letter and spirit.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

Conclusion

It is time for practitioners to take it as settled law: whenever the bank account of a client remains attached in spite of the filing of an appeal, the law stands firmly in the taxpayer’s favour. The combined reading of Sections 107 and 83, bolstered by judicial judgments such as Skylight Manpower, guarantees that after making the pre-deposit, the taxpayer shall not be exposed to coercive recovery. It is the duty of the department to remove the attachment instantly after being apprised of the appeal.

Awareness and proper assertion of such rights can avoid undue financial distress and reinforce procedural fairness that taxpayers deserve in GST administration.

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